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Exam 18: International Aspects of Financial Management

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Question 1

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Which of the following are participants in the foreign exchange market? I.importers,who pay for goods in foreign currencies II.exporters,who receive payment in foreign currencies III.domestic share brokers,who service local clients IV.portfolio managers,who purchase foreign securities

A) II,III and IV only
B) I and III only
C) II and IV only
D) I,III and IV only
E) I,II and IV only

F) D) and E)
G) A) and D)

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Question 2

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Which one of the following is the best definition of Eurocurrency?

A) any paper money used by a country that has adopted the euro as its common currency
B) both paper and coins officially adopted under the euro system of coinage
C) money deposited in a financial institution outside of the country whose currency is involved
D) US dollars owned by any country which has adopted the euro as its currency
E) any exchange of funds between two countries that have adopted the euro as their official currency

F) A) and D)
G) B) and C)

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Question 3

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The current spot rate between the UK and the US is £0.5418 per US$1.The expected inflation rate in the US is 2.5 per cent.The expected inflation rate in the UK is 4.0 per cent.If relative purchasing power parity exists,the exchange rate 3 years from now will be:

The exchange rate is 1.14 Swiss francs per Australian dollar.How many Australian dollars are needed to purchase 2500 Swiss francs?

Currently,you can exchange US$1 for £0.53.Assume that the average inflation rate in the US over the next four years will be 4 per cent annually as compared to 5 per cent in the UK Based on relative purchasing power parity,you should expect the _____ over the next 4 years.

Your favourite golf shoes cost US$89 in the US while the identical shoes cost A$110.00 in Australia.According to purchasing power parity,what is one Australian dollar worth?

A particular set of golf clubs in the US costs $990.According to absolute purchasing power parity,what should the identical set of clubs cost in Australia when the spot rate is AUD$1 = 0.9125?

The concept that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

A spot trade is defined as an agreement to exchange currencies based on the exchange rate _____ for settlement within _____ business day(s) .

Ozzie Nuts Pty Ltd import walnuts from California at a landed cost of US$25.00 per case and sell 10 000 cases per year at A$30.00.Currently the exchange rate is AUD$1 = USD$0.9000 and the company's gross profit would be A$22 222 for a year at this exchange rate.Experts are predicting that the exchange rate will fall to USD$0.8300.If the experts are correct,what will happen to Ozzie Nuts' full year gross profit if the selling price remains unchanged?

The following rates are given: 1 euro = 1.90 Australian dollars (AUD) 1 euro = 1.90 Swiss francs (CHF) 1 AUD = 0.97 CHF If you have 100 000 Australian dollars available,how much profit can you earn using the triangle arbitrage?

Assume a canned soft drink costs $1 in the US and $1.30 in Canada.At the same time,the currency per US dollar is C$1.30.Which one of the following conditions exists in this situation?

You are given the exchange rate between the US dollar and the Canadian dollar.You are also given the exchange rate between the US dollar and the Mexican peso.What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

A vintage Parker,type 65,fountain pen from 1968,popular among collectors,costs 105 British pounds in the United Kingdom,while you can buy the identical pen for 229 Australian dollars in a shop in Melbourne.According to purchasing power parity,the AUD/GBP exchange rate is:

The London Interbank Offer Rate (LIBOR) is the rate that most _____ banks charge one another for overnight _____ loans.

A New Zealand company has total assets valued at A$14 000 000,located in Western Australia.This valuation did not change from last year.Last year the exchange rate was A$0.92 per 1 NZ$.Now the exchange rate is A$0.88 per 1 NZ$.By what amount did the assets change in value on the company's New Zealand financial statement?

Assume that P_E is the euro price of a product,P_AU is the Australian price of the identical product,and S₀ is the spot exchange rate,quoted as the amount of Euro per Australian dollar.Given this,which one of the following correctly expresses absolute purchasing power parity?

The spot rate for the pound is £0.53 = AU$1 and for the euro is €0.78 = AU$1.What is the £/€ cross rate?

Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

The current spot rate between the UK and Australia is AUD$1 = £0.6764.The expected inflation rate in Australia is 1.8 per cent.The expected inflation rate in the UK is 3.4 per cent.If relative purchasing power parity exists,what will the exchange rate be 2 years from now?